THE

BUSINESS LAW

JOURNAL

JOHN EDSON BRADY

EDITOR

Volume I

February-June, 1923

THE BUSINESS LAW JOURNAL COMPANY

71-73 MURRAY STREET

NEW YORK CITY

JOHN EDSON BRADY, Editor

VOL. 1

M

FEBRUARY, 1923

Avoiding Litigation

No. 1

CH of the litigation in which business concerns find themselves involved is avoidable. It represents an important element of waste in industry. To a large extent it is the result of a lack of knowledge that might be gained by keeping in touch with the business decisions as they are handed down by the State and Federal Courts. Such information should enable the business executive to know when he is facing the possibility of legal entanglement and to seek the aid of counsel before the damage has been done.

The function of this publication is to collect these decisions, especially the ones in which a loss has unnecessarily been sustained, and present them in such form that the point involved can be readily understood.

There is a world of difference between studying abstract principles of law and keeping posted on the decisions, which the courts are continually handing down, bearing on everyday business transactions.

To illustrate, the statement that a person secondarily liable on a negotiable instrument is discharged by the discharge of a prior party, would probably not carry much meaning to the average reader. But, if one reads that the holder of a promissory note, by giving a release to the first indorser of the note, thereby automatically releases the second indorser, he is likely to remember it, and the chances are he will not find himself in the same predicament.

This thing happened in a recent Missouri decision, Sunflowe State Bank v. Bowman, 243 S. W. Rep. 403. It there appeared that a bank was the owner of a $1,500 promissory note, indorsed on the back by two parties, Brown and Bowman, in the order named.

Both Brown and Bowman were stockholders in the corporation which signed the note and to which the proceeds of the note were paid. They indorsed the note for the purpose of lending their credit to the corporation. For some reason, which does not appear, the

bank gave a release to Brown, the first indorser, upon his paying to the bank the sum of $200. And later, when the bank undertook to enforce the note for the balance due thereon against Bowman, the second indorser, it was surprised to learn that Bowman was no longer liable as indorser. The indorser of a negotiable instrument is a "person secondarily liable". And the Negotiable Instruments Law, which statute has been adopted in every state except Georgia, provides that a person secondarily liable is discharged from liability by the discharge or release of a prior party.

The point here involved has been decided time and again by the courts of the various states. It is a point worth while remembering.

Valuable Stock Subscription Rights Lost Through Absence of Stockholder from Country

N subsequent pages of this issue are published a number of digests of current business decisions. Among them is one which shows the loss of valuable stock subscription rights by a stockholder as a result of the stockholder's neglect to keep the corporation informed as to where corporate notices could be forwarded to him.

The stockholder, it seems, was the owner of 35 shares of the capital stock of the Great American Insurance Company. This company increased its stock from $2,000,000 to $5,000,000, and the increase was offered to the stockholders at $150 per share, in proportion to the number of shares of the original stock owned by them.

By reason of the shares held by him, the stockholder in question was entitled to subscribe to 522 shares of the increase. If he had subscribed for these shares, he could have immediately sold them at a profit to himself of $8,662.50. His failure to subscribe was due to the fact that notices sent out by the company, relating to the increase, were never received by him. The notices were sent to the stockholder at Post Office Box 250, Yokohama, Japan, which was the last address the stockholder had given to the company. At about the time the notices were sent, the stockholder had returned to this country and, before he learned of the increase and his rights thereunder, his 521 shares had been sold.

It appeared that the insurance company also sent notices to the stockholder's bank and his attorneys. But none of the notices sent was ever actually received by him. It was held that a reasonable endeavor to give notice had been made and that the stockholder had lost his right to subscribe for the increased stock.

At the present time, when trust companies all over the United States are advertising to accept the custody of securities belonging to their clients, collect dividends, interest and the principal on maturing investments, and to keep their clients informed as to new stock issues, etc., there is little excuse for a loss of this character. The decision referred to is Hoyt v. Great American Trust Company, 194 N. Y. Supp. 449.

Liability of Stockholder Where Foreign Corporation Transacts Business Without Qualification

A

CORPORATION is "foreign" in every state except the one under the laws of which it is organized. Each of the states has its own particular statutes, specifying the conditions upon which foreign corporations may enter for the transaction of business. And a foreign corporation has no right to engage in business in a particular state without having complied with the statutory requirements of that state. These statutes usually call for the filing of a certified copy of the certificate of incorporation and the payment of certain-taxes or license fees.

A failure on the part of a corporation to observe these requirenients is frequently visited with severe penalties. A provision commonly found is one to the effect that a foreign corporation, doing business in the state without first being properly authorized, may not maintain any action in the state upon any contract made therein.

It is not at all unusual for a corporation to engage in business in a state without qualification for a long period of time without serious consequences. An occasion arises making it necessary for the corporation to bring suit against a defaulting debtor. And then, when the corporation brings the debtor into court, it is surprised to learn that it has no standing in court because of its failure to comply with the statutes relating to foreign corporations.